Fight over CFPB prepaid rule coming to a head
WASHINGTON — The fight over a Consumer Financial Protection Bureau rule adding new restrictions to prepaid cards is intensifying as some Republicans hope to overturn it before a looming deadline for Congress to act expires.
Sen. David Perdue, R-Ga., and Rep. Roger Williams, R-Tex., have introduced companion bills in their respective chambers to use the obscure Congressional Review Act to reject the rule, but face a May 9 deadline for the legislation to pass. The review act allows lawmakers to reverse recently finalized rules with only a simple majority vote, and has already allowed Congress to reject more than a dozen Obama-era regulations this year.
But Republicans' efforts to win support even among their own caucus may be thwarted by changes the CFPB suggested Thursday to address concerns of companies like Google and PayPal and by pressure from consumer groups to elevate the rule's political profile.
It's not clear yet whether the GOP has the votes to prevail.
“This effort comes with some political risk,” Edward Mills, a policy analyst at FBR Capital Markets, said in a note to clients about the GOP move to reject the rule. “Any attempt to stop the rule will be promoted as anti-consumer, but we expect Republicans to counter that this regulation should have been part of the government-wide regulatory freeze and part of their push to limit the CFPB while Richard Cordray serves as director.”
The rule, issued last year, would ban overdraft fees and make other changes for prepaid cards. It has drawn objections from a few corners, chiefly the Electronic Transactions Association and Netspend, a provider of prepaid cards, but opposition to it is not widespread.
Most financial trade groups have stayed on the sidelines of the debate and Green Dot, the largest provider of prepaid cards, has come out in support of the rule. Several observers viewed the rule as helping the prepaid industry rather than burdening it.
“We have seen divisions in the industry on these rules from the very beginning,” said Ben Jackson, an analyst at Mercator Advisory Group.
Tech companies like Google and PayPal had separate concerns, however, because digital wallets were swept up by the rule, which would require them to provide disclosures that don’t really apply to their programs. In the case of a product offered by PayPal, for example, a customer would have to wait 30 days under the rule.
“If I sent you money through Google, you can’t go to an ATM, you can’t go to a store, a lot of that stuff doesn’t apply … it didn’t make a lot of sense for them to through the expense and struggle of complying with these rules when the accounts that they offer are not the same as a prepaid card that is being used to replace a bank account,” Jackson said.
The CFPB said Thursday that it would review some of the concerns surrounding the digital wallets, which may alleviate the tech companies' fears.
“There are plenty of people that think they can survive with an altered rule, and nobody wants to be the one that says ‘We killed consumer protection,' ” Jackson said.
The agency’s proposal would do nothing, however, to help Netspend, which is one of the only prepaid card providers to make significant money with an overdraft features associated with its card. If Congress were to reject the CFPB's rule, it would prevent the agency from addressing the issue again in the future without specific authorization by lawmakers. As a result, Netspend would preserve the legality of its product indefinitely.
A spokesperson for the Electronic Transactions Association, which represents firms like Google, PayPal and Netspend, said the CFPB plan is a step in the right direction, but "we still have concerns without the current final rule."
Netspend's campaign donations to Perdue, which totaled $17,500 since 2014, have emerged as a flash point in the debate, with liberal groups accusing the Georgia Republican of kowtowing to the Georgia-based firm.
“Sen. Perdue took a pile of money from a prepaid debit card company … and he is doing legislative gymnastics to save them $80 million,” said Karl Frisch, executive director of Allied Progress.
That charge is hotly denied by the lawmaker. A spokeswoman for the Georgia Republican said that like many in the party, he views the CFPB as a symbol of government overreach.
“While Allied Progress continues to recklessly defend this overreaching government agency, Sen. Perdue will continue working fearlessly to provide congressional oversight and hold them accountable to the American people,” said a spokeswoman for Perdue.
Netspend, meanwhile, argues that its overdraft product provides a lifeline for its customers who are in need of a small dollar loan. The overdraft fee is generally lower than those of banks, but the line of credit is also less, maxing out at $100 with a $15 fee.
Whether Perdue can succeed in winning enough Republican support to overturn the rule is unclear. So far, 31 Republican senators, including Majority Leader Mitch McConnell, have signed a discharge petition for his legislation.
Yet there are indications that may not be enough. If McConnell saw sufficient support for the plan, he could have brought it to the Senate floor already.
And time is running out. Congress returns from its recess on Monday, but it needs to act quickly to avoid a government shutdown. Using the Congressional Review Act also eats up floor time, allowing for ten hours of debate for both Democrats and Republicans. Republicans can speed up the process by forgoing the use of their debate time. If lawmakers do not act before May 9, they will lose their chance to overturn the prepaid card rule.
Democrats are expected to fight the effort, and the issue could turn into a political minefield that Republicans and the industry would prefer to avoid.
Moreover, there are many voices that support the rule, even within the financial services industry.
“The vast majority of customers turn to prepaid cards because they want to avoid overdraft fees. So having fees as an available option on prepaid cards defeats that purpose, which is why we supported banning overdraft fees on prepaid cards,” said Thaddeus King, an officer for Pew's consumer banking project.